Both of them work over the summer to earn spending money for the school year. I pay their tuition, but stopped paying an allowance when they graduated from high school. So they need the income. But as an added incentive I set up each with what I call a family 401(k), where I match their summer earnings with a contribution to their Roth IRA.
This program has many benefits. The first thing you need to know is that your kids must have taxable income to qualify for a Roth IRA. That alone is good reason for them to get a job over the summer or after school. To open their account you will need:
- Their Social Security number
- Their employer's name and address
- Your bank information
- Money in your account to transfer
- Some idea of a user name, password and identification question for your kids (once the account is up and running they may change those at any time)
You can set up a Roth at any number of financial institutions -- banks, brokerages, mutual fund companies. They all have certain advantages. But for your kids' accounts a mutual fund company probably has the best combination of convenience, low fees and minimums and investment options. Fidelity, for example, lists a $2,500 minimum to open a Roth IRA. But that is waived if you sign up for monthly contributions -- or if you simply ask. I launched my kids' Roth IRAs with $1,000. Other good choices include Vanguard and T. Rowe Price.